'Delta', 'Alpha' Teams Provide Cover for 'Rogue' Traders - Outrage

NEW YORK (TheStreet) -- It seems so obvious now. The reason banks use covert-sounding team names like the "Delta One" desk at UBS (UBS) and the "Alpha" fund at Goldman Sachs (GS) is because they really are trying to cover things up.

These are the banking equivalents of special forces. They are meant to operate in the shadows; no one is supposed to know much about them or what they do. When things go wrong, the teams are disavowed. They become "rogue traders" and their actions are decried as "unauthorized."

Officially, Delta and Alpha are financial terms referring to the change in price of a derivative versus its underlying asset and the risk-adjusted return on an investment, respectively. But that is clearly just a cover.

Over at UBS, the shadow operations of the Delta One desk exposed that many of the derivative games that caused the financial crisis are still being played in the shadows. Traders using the bank's funds seek to profit from small differences between a security like the Swiss franc and a derivative security like a currency ETF.

To make a big profit on these small differences, a sizable amount of the bank's money needs to be put at risk -- and in the UBS case we now know that one trader alone had put about $2 billion at risk and lost it.

While UBS is getting all the attention (that's what happens when an undercover operation is blown), it's actually a somewhat minor player among the banks with Delta One teams. Goldman Sachs is one of the biggest operatives, as you'd expect, according to a 2010 report by JPMorgan. France's Societe Generale and BNP Paribas are also in the game along with Credit Suisse ( CS)and Barclays ( BCS), according to JPMorgan.

Speaking of Goldman, it's in the process of shutting down its Global Alpha Fund, after investors started pulling their money out amid mounting losses and a management shakeup at the fund.

Goldman's Global Alpha Fund is a so-called quant fund, meaning it uses computerized trading systems known as quantitative models, to try to beat the market. It was once a $12 billion fund and is now reportedly down to about $1 billion.

The operatives behind this fund weren't rogue traders, more like rocket scientists who worked with "Q" designing secret high-tech weapons in James Bond novels. In Goldman's case, "Q" stands for quant and is being retired (or at least going underground until things cool off).

It may be time to retire the entire Greek alphabet. In fact, that's what the so-called Volcker rule tucked into the Dodd-Frank act intends to do by prohibiting banks in the U.S. from trading for their own accounts.

Regulators need to hurry up and implement those rules before this new form of Greek contagion spreads again.